By the Numbers
Refinancing is easy-come-easy-go
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Applications to refinance mortgages fell again this week, according to the Mortgage Bankers Association’s refinance index. The conventional index dropped to the lowest level since the start of July, signaling the conventional refinance wave will be short-lived. Conventional prepayment speeds in October are currently on track to increase 30% and could end up even higher, well above start-of-month estimates. But higher mortgage rates and the lower refinance index point to markedly slower speeds in November. Refinancing is also slowing for FHA and VA loans, albeit not as much as for conventional loans, and remains elevated compared to earlier this year.
The refinance index fell again this week for conventional, FHA, and VA loans (Exhibit 1). The conventional index is approaching levels from earlier this year when few borrowers were refinancing, and speeds should slow after a surge in October. The two government loan indices also fell but are still elevated compared to earlier this year. Those borrowers generally received lower mortgage rates than conventional borrowers but face strict rules that prevent most refinancing of recently originated loans. Many loans that were originated in late 2023 were ineligible to refinance in early 2024 but are eligible, and have incentive, to refinance now.
Exhibit 1. Applications to refinance mortgages fell again last week.
The MBA’s indices are re-scaled to 100 at the start of the period shown.
Source: Mortgage Bankers Association, Bloomberg, Santander US Capital Markets.
There was a small bounce in the various mortgage purchase indices last week (Exhibit 2). However, this may be an artifact of the preceding holiday week—perhaps some applications spilled into the following week—and not necessarily a reflection of a real increase in purchase activity. Overall purchase activity remains near the 2-year lows.
Exhibit 2. The purchase index bounced slightly higher last week.
The MBA’s indices are re-scaled to 100 at the start of the period shown.
Source: Mortgage Bankers Association, Bloomberg, Santander US Capital Markets.
Primary mortgage rates moved even higher last week (Exhibit 3). The conventional rate increased 19 bp to 6.79 bp from October 22 to 29. The VA mortgage rate increased similarly, up 21 bp to 6.31%. The FHA rate, however, increased only 13 bp to 6.38%. The rate spread between FHA and VA loans is typically much wider than this level, although has been in this neighborhood a few short times since the start of 2022.
Exhibit 3. Primary mortgage rates continued to march higher last week.
Primary mortgage rates are averages of mortgage rate locks and published daily by Optimal Blue.
Source: Optimal Blue, Bloomberg, Santander US Capital Markets.
Primary-secondary spreads for conventional and VA loans leveled off over the last week (Exhibit 4). Spreads are at or below the lowest levels of the last two years as lenders try to keep origination volumes from falling, but spreads leveling off might be a sign that they are poised to increase over the coming weeks. The FHA spread continued to tighten but at a somewhat slower pace.
Exhibit 4. The FHA primary-secondary spread kept tightening this week.
A five-day moving average is applied to smooth the series. FHA and VA spreads are measured against the G2SF current coupon yield. Spreads for 30-year loans. Optimal Blue’s mortgage rates are averages of mortgage rate locks and published daily.
Source: Optimal Blue, Bloomberg, Yield Book, Santander US Capital Markets.
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
